A risk-free asset in the U.S. is currently yielding 3 % while a Canadian risk-free asset is yielding 2 %. The current spot rate is C$.92 is equal to US$1. What is the approximate two-year forward rate if interest rate parity holds?

Question

Quizplus · Accepted Answer

The correct answer is A because the forward rate is calculated as the spot rate multiplied by the ratio of the foreign interest rate to the domestic interest rate. In this case, the forward rate is C$.92 * (1 + 0.02) / (1 + 0.03) = C$.9017.

A Risk-Free Asset in the U